With the poise of a sea-hardened captain standing at a ship’s helm, Australian business owners have navigated through treacherous economic tides. Following the crests and troughs of business confidence amid high inflation and other global risks, many are now starting to see light on the horizon and, with calmer tides, an opportunity to invest in their own businesses.
As such, asset finance continues to swell.
In September, the Commonwealth Bank of Australia (CBA) released data showing there had been a 15 per cent uplift in vehicle and equipment financing for small and medium-sized businesses in the financial year 2024, driven by vehicle purchases (up 55 per cent), financing for light commercial vehicles (up 27 per cent), and shop and office fitouts (up 27 per cent).
The major bank noted particularly strong activity in the health and community services (up 35 per cent) as well as education (up 24 per cent) and manufacturing (up 18 per cent).
At the time, Grant Cairns, executive general manager of business lending at CBA, said this reflected a growing consensus among business owners that while Australia has sound economic fundamentals, lingering headwinds have created an imperative to invest.
“Inflation and other global risks contribute to uncertainty that’s rightly prompting business owners to take steps to ensure their operations are future-fit and resilient,” Cairns said.
“While companies are navigating ongoing pressure from rising cost of doing business, we are seeing many business owners taking the long view on the economy and investing in their operations.”
Regional focus
This investment interest provides brokers with another opportunity to start a conversation with their business clients.
The opportunity for brokers is also broad. According to National Australia Bank’s (NAB) Regional & Agribusiness Horizons report, there was a combined 6.2 per cent growth in rural and regional lending in FY23.
NAB data also shows 9.1 per cent growth in demand for credit in the agricultural sector, while the appetite for vehicles and equipment increased 10 per cent.
The demand for equipment finance is relatively strong across the board. Victoria led the way (up 21 per cent), followed by Queensland (up 14 per cent), South Australia (up 4 per cent), and NSW/ACT (up 4 per cent).
Only Western Australia recorded negative growth (down 3 per cent). Tasmania actually recorded the highest growth in demand (up 37 per cent), although NAB says this was mostly due to the recording period being the first time the major bank had a local equipment finance representative on the island.
NAB’s data shows many regional businesses were eager to grow their portfolios, with demand for finance for motor vehicles (up 35 per cent), trucks (up 8 per cent), and agricultural equipment and machinery (up 15 per cent).
Chris Fileman, NAB head of equipment finance sales, said demand for equipment finance in regional Australia has been prompted by favourable weather and high crop yields.
“This has allowed our farmers, regional customers, and miners to have more cash flow and in turn they are spending more on replacement equipment,” Fileman says.
Sustainable shift
Another notable trend in asset finance is the increasing demand for debt to fund green assets, particularly vehicles.
CBA’s lending data shows a 533 per cent increase in demand for loans for hybrid vehicle in FY24, for example, while demand for loans for electric vehicles (EVs) was up 254 per cent.
Demand appeared to be just as high outside the capitals, according to NAB’s report, with regional and agricultural demand for EVs up 283 per cent year on year.
Part of this has been due to accessibility and NAB’s report notes the impact of increases in electric charging infrastructure and lower EV prices.
“As the price for EVs comes down, we will see our customers be more active in this market on the proviso that the infrastructure is available in regional Australia,” Fileman says.
Mathew Clowes, head of sales and distribution – asset finance at non-bank lender Resimac, says brokers would do well to be aware of opportunities for sustainable finance such as EVs.
“Though this isn’t a new trend, it’s an important one to keep an eye on,” Clowes says.
“According to the Electric Vehicle Council, Australia is on track to hit a first-time milestone of 100,000 EVs sold in 2024. Brokers have the opportunity to support their customers with access to more options to finance these purchases.”
What borrowers want
With so much appetite for asset finance debt, the concern becomes how brokers can make the most of it and find products that best serve their clients.
There is the opportunity to deepen customer relationships and combine asset finance with other financial products to create comprehensive solutions
Mathew Clowes, head of sales and distribution – asset finance, Resimac
For instance, Matthew Heinnen, Liberty Financial’s group manager commercial, says that asset finance is one area where the non-banks excel.
He says traditional lender criteria can be a challenge for business borrowers, especially when their situation isn’t straightforward.
“We work with both the broker and customer to better understand the customer’s position and structure a solution that works for them,” Heinnen says.
“We recognise there is more to a borrower than what’s in their credit file and can help to find a tailored solution that fits their circumstances.”
Clowes says borrowers are primarily looking for competitive pricing, flexible repayment terms, and efficient processing for their asset finance needs.
“Business owners can also take advantage of flexible repayment structures with asset finance, enabling businesses to align payment terms with their cash flow patterns,” Clowes says.
“There may even be potential tax benefits that could help reduce a business’s overall tax liability.”
Incentives such as the instant asset write-off scheme, where eligible businesses can claim a deduction for the cost of an asset, provide a good opportunity, too. Clowes says brokers should stay updated with the regulatory landscape, as well as market conditions and trends.
“It’s also important to build strong connections with lenders, to build out this knowledge base and assess the different financing options available to tailor solutions based on a client’s needs,” Clowes says.
As a result, brokers can offer asset finance solutions that help their clients steer their businesses toward calmer waters.
“In doing so, there is the opportunity to deepen customer relationships and combine asset finance with other financial products to create comprehensive solutions,” Clowes says.
